Stephanomics: “broad lessons for the eurozone are already clear, and not encouraging”

Worries over stability in the Emerald Isle are being compounded as the bailout becomes more and more political by the day, with the opposition party Fine Gael calling for a snap general election, citing public distrust over the handling of the crisis. The risk of contagion still lingers over European markets, with traders now eyeing up the next sacrificial lamb. Spanish and Italian markets are down more than 2% with Portugal faring better, down just over 1%. A 1.3% fall in the Dow Jones EuroStoxx 50 index helps highlight a broad sell off, as its coverage of major blue chips from within the EMU shows it is outselling the benchmark British and German indices.

And the BBC’s Stephanie Flanders notes that “some broad lessons for the eurozone are already clear, and not encouraging.”

The first lesson is that Europe is further than ever from a pragmatic approach to the debt mountain sitting on the balance sheets of Europe’s more troubled banks.

Negotiators appear to have gone into the Irish negotiations with an assumption that senior creditors to Ireland’s banks will not see their bonds restructured as part of the deal.

If so, the eurozone is pressing ahead with the same approach it has followed ever since the collapse of Lehmans set us on this path. That is: when in doubt, sign another blank cheque to private creditors, and try not to think about the money, or the moral hazard.

And she also reminds the eurozone of an important point

This is what should be troubling Europe’s leaders about Ireland. Greece is seen as a country that broke the rules and has to pay. Ireland has its faults, which European officials may choose now to play up. But, at bottom, it is a country that played by the rules of the euro and failed. Other countries striving to make a go of the single currency will reasonably ask whether the same fate awaits them.